BTIG Says Wingstop's Stock Has Gone 'Too Far Too Fast'

Up more than 70 percent year-to-date and 35 percent since April, shares of Wingstop Inc WING have risen "too far too fast," according to BTIG.

The Analyst

BTIG's Peter Saleh downgraded Wingstop from Buy to Neutral.

The Thesis

Restaurant chains who have shown an ability to improve unit growth and traffic warrant a higher valuation today, but in Wingstop's case the strong gains in 2018 can't be justified, Saleh said in a note. Specifically, the chain lifted its unit growth rate guidance from at least 10 percent in the second quarter to a range of 12.0-12.5 percent although in the reporting period traffic trends have been "somewhat anemic" with flat to slightly negative traffic in the second quarter into July.

Meanwhile, the analyst said Wingstop's price-to-earnings multiple jumped from around 50 times 2019 estimates prior to the second quarter earnings report to around 70.1 times today. EV/EBITDA expanded from 30.5 times to 39.2 times. A higher multiple based on EBITDA is more difficult to justify given expectations for EBITDA growth to remain in the mid-teens, which would mirror fellow restaurant chain Domino's Pizza, Inc. DPZ, which trades at just 29.8 times 2019 estimated EPS forecast and 4.2 times on EBITDA estimates.

Even though Wingstop is considered a "highly-valued stock," Saleh said a large premium valuation versus Domino's is "more than we are comfortable with" despite expectations for strong growth ahead.

Price Action

Shares of Wingstop were trading lower by 2 percent to $65.56 Tuesday afternoon.

Related Links:

Morgan Stanley, Stephens Optimistic On Wingstop Despite Questionable 2018 Guidance

4 Reasons Why Wedbush Upgraded Wingstop